Minimum wage in the United States

Minimum wage in the United States discusses the ongoing economic and political debates as well as the history of the minimum wage in the United States. Workers generally must be paid no less than the statutory minimum wage as specified by the U.S. federal government and local as well as state governments. As of July 2009, the federal government mandates a nationwide minimum wage level of $7.25 per hour. Effective January 1, 2015 there were 29 states with a minimum wage higher than the federal minimum. From 2014 to 2015, nine states increased their minimum wage levels through automatic adjustments, while increases in 11 other states occurred through legislative or ballot changes. The federal minimum wage peaked at about $10 in 1968, measured in 2014 dollars (i.e., adjusted for inflation).[1]

The Congressional Budget Office (CBO) estimated in 2014 that raising the minimum wage to $10.10 and indexing it to inflation would increase the wages of 16.5 million workers in 2016, while raising it to $9.00 without indexing would affect 7.6 million.[8] Among workers paid by the hour in 2013, 1.5 million were reported as earning exactly the prevailing federal minimum wage. About 1.8 million were reported as earning wages below the minimum. Together, these 3.3 million workers with wages at or below the minimum represent, respectively: 1.0% of the population, 1.6% of the labor force, 2.5% of all workers, and 4.3% of hourly workers.[9]

Since it was last reset on July 24, 2009, the federal minimum wage in the United States has been $7.25 per hour. Some U.S. territories (such as American Samoa) are exempt. Some types of labor are also exempt: employers may pay tipped labor a minimum of $2.13 per hour, as long as the hour wage plus tip income equals at least the minimum wage. Persons under the age of 20 may be paid $4.25 an hour for the first 90 calendar days of employment (sometimes known as a youth, teen, or training wage) unless a higher state minimum exists.[15]

Voters in the Republican-controlled states of Alaska, Arkansas, Nebraska and South Dakota considered ballot initiatives in November 2014 to raise the minimum wage above the national rate of $7.25 per hour. In all four states the initiatives were successful. The results provide further evidence that raising minimum pay has support across party lines.[20]

History of the federal minimum wage in real 2013 dollars and nominal dollars.

The minimum wage had its highest purchasing value in 1968, when it was $1.60 per hour ($10.88 in 2014 dollars).[13] From January 1981 to April 1990, the minimum wage was frozen at $3.35 per hour, then a record-setting wage freeze. From September 1, 1997 through July 23, 2007, the federal minimum wage remained constant at $5.15 per hour, breaking the old record. Congress then gave states the power to set their minimum wages above the federal level. As of July 1, 2010[update], fourteen states had done so.[22] Some government entities, such as counties and cities, observe minimum wages that are higher than the state as a whole. One notable example of this is Santa Fe, New Mexico, whose $9.50 per hour minimum wage was the highest in the nation,[23][24][25] until San Francisco increased its minimum wage to $9.79 in 2009.[26] Another device to increase wages, living wage ordinances, generally apply only to businesses that are under contract to the local government itself.

Since 1984, the purchasing power of the federal minimum wage has decreased. Measured in real terms (adjusted for inflation) using 1984 dollars, the real minimum wage was $3.35 in 1984, $2.90 in 1995, $2.74 in 2005, and $3.23 in 2013. If the minimum wage had been raised to $10.00 in 2013, that would have equated to $4.46 in 1984 dollars.[27][28]

CBO table with projections of the effects of minimum wage increases on employment and income, under two scenarios

Estimated minimum wage effects on employment from a meta-study of 64 studies showed insignificant employment effect (both practically and statistically) from minimum-wage raises supporting the Keynesian model. The most precise estimates were heavily clustered at or near zero employment effects (elasticity = 0).[29]

The economic effects of raising the minimum wage are controversial. Adjusting the minimum wage may affect current and future levels of employment, prices of goods and services, economic growth, income inequality and poverty. The interconnection of price levels, central bank policy, wage agreements, and total aggregate demand creates a situation in which the conclusions drawn from macroeconomic analysis are highly influenced by the underlying assumptions of the interpreter.[30]

Classical economics argues that raising the price of something results in a lower quantity demanded, in this case fewer workers. Conceptually, if an employer does not believe a worker generates value equal to or in excess of the minimum wage, that worker will not be hired or retained.[31]

In February 2014, the CBO reported the effects of a federal minimum wage increase under two scenarios, an increase to $10.10 with indexing for inflation thereafter and an increase to $9.00 with no indexing:

Approximately 16.5 million workers would have their wages rise under the $10.10 option versus 7.5 million under the $9.00 option.

Employment would likely fall by 500,000 under the $10.10 option and 100,000 under the $9.00 option, with a wide range of possible outcomes.[8]

The CBO report is controversial and economists say the CBO job loss projection is based upon flawed studies and estimates that are questionable, as well as failing to explain the assumptions the report makes to support job losses.[32][33][34]

A 1994 study by economists David Card and Alan Krueger compared the effect on employment in 410 restaurants in New Jersey and eastern Pennsylvania following an increase in the New Jersey minimum wage from $4.25 to $5.05 in April 1992. The study found "no indication that the rise in the minimum wage reduced employment."[35]

A 2013 Center for Economic and Policy Research (CEPR) review of multiple studies since 2000 indicated that there was "little or no employment response to modest increases in the minimum wage." The study indicated 11 reasons for this finding, the most important including: "reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ('wage compression'); and small price increases."[36]

Another CEPR study in 2014 found that job creation within the United States is faster within states that raised their minimum wage.[37] In 2014, the state with the highest minimum wage in the nation, Washington, exceeded the national average for job growth in the United States.[38]

One study concluded that a 10% increase in the minimum wage lowers low-skill employment by 2-4% and total restaurant employment by 1-3%.[39]

Some argue that an increasing minimum wage might reduce youth employment (since these workers are likely to have fewer skills than older workers).[40] Overall, there is no consensus between economists about the effects of minimum wages on youth employment.[41]

The Economist wrote in December 2013: "A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs...Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage."[42]

Conceptually, raising the minimum wage increases the cost of labor, other things equal. Employers may accept lower profits or raise their prices or both. If their prices increase, consumers may demand a lesser quantity of the product, substitute other products or switch to imported products. Marginal producers (those who are barely profitable enough to survive) may be forced out of business if they cannot raise their prices sufficiently to offset the higher cost of labor. Whether the increased income of the workers benefiting from the minimum wage increase can offset these effects is debatable.[31]

Some economic research has shown that restaurant prices rise in response to minimum wage increases.[43]

Whether growth (GDP, a measure of both income and production) increases or decreases depends significantly on whether the income shifted from owners to workers results in an overall higher level of spending. The tendency of a consumer to spend their next dollar is referred to as the marginal propensity to consume or MPC. The transfer of income from higher income owners (who tend to save more, meaning a lower MPC) to lower income workers (who tend to save less, with a higher MPC) can actually lead to an increase in total consumption and higher demand for goods, leading to increased employment.[8]

The CBO reported in February 2014 that income (GDP) overall would be marginally higher after raising the minimum wage, indicating a small net positive increase in growth. Raising the minimum wage to $10.10 and indexing it to inflation would result in a net $2 billion increase in income during the second half of 2016, while raising it to $9.00 and not indexing it would result in a net $1 billion increase in income.[8]

An increase in the minimum wage is a form of redistribution from higher-income persons (business owners or "capital") to lower income persons (workers or "labor") and therefore should reduce income inequality. The CBO estimated in February 2014 that raising the minimum wage under either scenario described above would improve income inequality. Families with income more than 6 times the poverty threshold would see their incomes fall (due in part to their business profits declining with higher employee costs), while families with incomes below that threshold would rise.[8]

By raising the wages of lower income persons, more are above the poverty threshold. This far exceeds any employment impacts. CBO estimated in February 2014 that raising the minimum wage would reduce the number of persons below the poverty income threshold by 900,000 under the $10.10 option versus 300,000 under the $9.00 option.[8]

The CBO reported in February 2014 that "[T]he net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter. It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits." On the cost side, the report cited higher wages paid for by the government to some of its employees along with higher costs for certain procured goods and services. This might be offset by fewer government benefits paid, as some workers with higher incomes would receive fewer government transfer payments. On the revenue side, some would pay higher taxes and others less.[8]

In 2014, over 600 economists signed a letter in support of a $10.10 minimum wage increase with research suggesting that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth.[44][45][46][47] Also, seven recipients of the Nobel Prize in Economic Sciences were among 75 economists endorsing an increase in the minimum wage for U.S. workers and said "the weight" of economic research shows higher pay doesn’t lead to fewer jobs.[48][49][50]

According to a February 2013 survey of the University of Chicago IGM Forum, which includes approximately 40 economists:

34% agreed with the statement that "Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment", while 56% were either uncertain or disagreed.

42% agreed with the statement that "...raising the minimum wage to $9 per hour and indexing it to inflation...would be a desirably policy", with 32% uncertain and 11% disagreeing or strongly disagreeing.[51]

According to a paper written in 2000 by Fuller and Geide-Stevenson, 73.5% (27.9% of which agreed with provisos) of American economists agreed that a minimum wage increases unemployment among unskilled and young workers, while 26.5% disagreed with this statement.[52]

Former President Bill Clinton advocated raising the minimum wage during 2014: "I think we ought to raise the minimum wage because it doesn’t just raise wages for the three or four million people who are directly affected by it, it bumps the wage structure everywhere...The estimates are that 35 million Americans would get a pay raise if the federal minimum wage was raised...If you [raise the minimum wage] in a phased way, it always creates jobs. Why? Because people who make the minimum wage or near it are struggling to get by, they spend every penny they make, they turn it over in the economy, they create jobs, they create opportunity, and they take better care of their children. It’s just the right thing to do, but it’s also very good economics."[54]

The Pew Center reported in January 2014 that 73% of Americans supported raising the minimum wage from $7.25 to $10.10 per hour. By party, 53% of Republicans and 90% of Democrats favored this action.[55]

A Lake Research Partners poll in February 2012 included the following findings:

Strong support overall for raising the minimum wage, with 73% of likely voters supporting an increase to $10 and indexing it to inflation during 2014, including 58% who strongly support the action;

Support crosses party lines, with support from 91% of Democrats, 74% of Independents, and 50% of Republicans; and

A majority (56%) believe that raising the minimum wage will help the economy, with 16% believing it won't make a difference. Only 21% felt it would hurt the economy.[56]

This is a list of the minimum wages (per hour) in each state and territory of the United States, for jobs covered by federal minimum wage laws. If the job is not subject to the federal Fair Labor Standards Act, then state, city, or other local laws may determine the minimum wage.[59] A common exemption to the federal minimum wage is a company having revenue of less than $500,000 per year while not engaging in any interstate commerce.

Under the federal law, workers who receive a portion of their salary from tips, such as waitstaff, are required only to have their total compensation, including tips, meet the minimum wage. Therefore, often, their hourly wage, before tips, is less than the minimum wage.[60] Seven states, and Guam, do not allow for a tip credit.[61] Additional exemptions to the minimum wage include many seasonal employees, student employees, and certain disabled employees as specified by the FLSA.[62]

In addition, some counties and cities within states may observe a higher minimum wage than the rest of the state in which they are located; sometimes this higher wage will apply only to businesses that are under contract to the local government itself, while in other cases the higher minimum will be enforced across the board.

The Fair Labor Standards Act requires a minimum wage of $2.13 for tipped workers with the expectation that wages plus tips total no less than $7.25 per hour. The employer must pay the difference if total income does not add up to $7.25 per hour.[63]

Arizona's minimum wage increased to $8.05 on January 1, 2015.[71] The state tipped minimum wage is $3 per hour less. Pursuant to Arizona Proposition 202 (2006), the rates are adjusted annually on January 1 based on the U.S. Consumer Price Index. This rate increase does not affect student workers in places such as libraries and cafeterias because those positions are given by universities, which are state entities.[72]

California's minimum wage will increase to $10.00 on January 1, 2016.[76]Jackson Rancheria: $10.60 since January 1, 2014 on the Tribe's sovereign 1,500-acre reservation in Amador County.[77]San Francisco: San Francisco's minimum wage has been $11.05 since January 1, 2015; the city has the highest minimum wage in the country, and the rate will increase to $15.00 by 2018 and will be indexed to inflation on July 1 of each year starting in 2019.[78] (San Francisco has the highest minimum wage in the United States.) San Jose: $10.15 since January 1, 2014.[79]Berkeley: $10.00 since October 1, 2014; will increase to $11.00 effective October 1, 2015 and to $12.53 effective October 1, 2016.[80]

Connecticut's minimum wage increased to $9.00 on January 1, 2015.[84] On March 26, 2014, the state passed legislation to raise the minimum wage to $10.10 by January 1, 2017.[2] Connecticut's tipped minimum wage is 69% of the state minimum wage (tipped employees defined as $10/wk or $2/day in tips).[85]

Florida's minimum wage is increased annually based upon a cost of living formula, following a 2004 ballot referendum.[87] Florida's minimum wage increased to $8.05 and the tipped minimum wage to $5.03 on January 1, 2015.[88]

Only applicable to employers of 6 or more employees. If fewer than six, then there is no minimum at all. The state law excludes from coverage any employment that is subject to the Federal Fair Labor Standards Act when the federal rate is greater than the state rate.[91]

Employers may pay anyone under the age of 18, or anyone for the first 90 days of employment, fifty cents less. Tipped employees earn 60% of the minimum wage (employers may claim credit for tips, up to 40% of wage) There is also a training wage for tipped employees.[94]

Massachusetts' minimum wage will increase to $11.00 by 2017 making it the highest minimum-wage in the country at the state level. Massachusetts is the only state in the country that mandates time-and-a-half for retail workers working on Sunday. When the state minimum wage takes full effect at $11 an hour in 2017 the effective minimum wage for a retail worker working on Sunday is $16.50 an hour.

Small employers, whose annual receipts are less than $625,000 and who do not engage in interstate commerce, can pay their employees $5.25 per hour. Overtime applies after 48 hours per week.[102] Note: The federal minimum wage for all employers grossing more than $500,000 is $7.25 an hour as of July 24, 2009, so the Minnesota large-employer rate of $6.15 an hour is obsolete as of that date, except that it applies to tipped employees as it is higher than the federal tipped rate.[103] For large-employer, the minimum wage becomes $8.00/hour on Aug 1, 2014; $9.00 on Aug 1, 2015; and $9.50 on Aug 1, 2016. For small-employer, the same timeframe will be used for increases to $6.50, $7.25, then $7.75. Beginning January 1, 2018, all minimum wage rates will increase by the national implicit price deflator or 2.5%, whichever is lower.[104]

Montana's minimum wage rate is automatically adjusted annually based on the U.S. Consumer Price Index, and increased to $8.05 on January 1, 2015. Income from tips cannot offset an employee's pay rate. The state minimum wage for business with less than $110,000 in annual sales is $4.00.[69]

The minimum wage has been $8.25 ($1 higher than the federal minimum) since July 1, 2010. Employers who offer health benefits can pay employees $7.25.[106] The rate is adjusted every July 1, based on the federal minimum or the accumulated inflation since 2006, whichever is higher, based on a 2006 Minimum Wage Amendment to the Nevada Constitution.[107]

$10.64 in Santa Fe as of 2014.[111][112] (Santa Fe has the third highest minimum wage in the United States after Jackson Rancheria, CA, and San Francisco.) Albuquerque's minimum wage became $8.60 on January 1, 2014.[113]

The Minimum Wage rate increased to $8.75 on December 31, 2014, and will increase to $9.00 on December 31, 2015.[115] New York State also has a minimum for exempt employees of $543.75 per week as of July 24, 2009.[116] Tipped employee minimum ranges from $4.90 to $5.65 depending on industry.[70] Effective December 31, 2013, there are different rules for the minimum cash wage for employers employing tipped employees outside of the hospitality industry, (e.g., in car washes and in salons). For workers earning more than $1.95 on average per hour in tips, the minimum cash wage will be $6.05 per hour; for workers earning between $1.20 and $1.95 in tips on average per hour, the cash wage is $6.80 [117]

Minimum wage increases annually by a voter-approved cost-of-living adjustment based on the federal Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).[126] Beginning in 2015, the city of Seattle will begin phasing in a minimum wage rate of $15.00 which is to be completed for businesses with over 500 employees by 2017, and for all businesses by 2021.[127] Washington is particularly unique in the fact that not only does it have the highest minimum wage in the country but it also does not have a state wide income tax.

West Virginia's minimum wage increased to $8.00 on December 31, 2014, and will increase to $8.75 on December 31, 2015.[128] The state minimum wage is applicable to employers of six or more employees at one location not involved in interstate commerce.[69] The state's minimum wage for tipped employees is 80% of the federal minimum wage.[70]

Varies by industry.[130] On September 30, 2010, President Obama signed legislation that delays scheduled wage increases for 2010 and 2011. On July 26, 2012, President Obama signed S. 2009 into law, postponing the minimum wage increase for 2012, 2013, and 2014. Annual wage increases of $0.50 will recommence on September 30, 2015 and continue every three years until all rates have reached the federal minimum.[131]

This rate is automatically set at $1 above the federal minimum wage rate.[132] The tipped wage in Washington, D.C., is $2.77 per hour.[70] A law enacted in January 2014 will have annual increases every July; $10.50 in 2015, and $11.50 in 2016. Afterwards the increases will be based on the region's cost of living.[133]

Employers covered by the Federal Fair Labor Standards Act (FLSA) are subject only to the federal minimum wage and all applicable regulations. Employers not covered by the FLSA will be subject to a minimum wage that is at least 70 percent of the federal minimum wage or the applicable mandatory decree rate, whichever is higher. The Secretary of Labor and Human Resources may authorize a rate based on a lower percentage for any employer who can show that implementation of the 70 percent rate would substantially curtail employment in that business.

Puerto Rico also has minimum wage rates that vary according to the industry. These rates range from a minimum of $5.08 to $7.25 per hour.

The jobs that are most likely to be directly affected by the minimum wage are the ones that pay a wage close to the minimum.

According to the May 2006 National Occupational Employment and Wage Estimates,[136] the four lowest-paid occupational sectors in May 2006 (when the federal minimum wage was $5.15 per hour) were the following:

Sector

Workers Employed

Median Wage

Mean Wage

Mean Annual

Food Preparation and Serving Related Occupations

11,029,280

$7.90

$8.86

$18,430

Farming, Fishing, and Forestry Occupations

450,040

$8.63

$10.49

$21,810

Personal Care and Service Occupations

3,249,760

$9.17

$11.02

$22,920

Building and Grounds Cleaning and Maintenance Occupations

4,396,250

$9.75

$10.86

$22,580

Two years later, in May 2008, when the federal minimum wage was $5.85 per hour and was about to increase to $6.55 per hour in July 2008, these same sectors were still the lowest-paying, but their situation (according to Bureau of Labor Statistics data)[137] was:

Sector

Workers Employed

Median Wage

Mean Wage

Mean Annual

Food Preparation and Serving Related Occupations

11,438,550

$8.59

$9.72

$20,220

Farming, Fishing, and Forestry Occupations

438,490

$9.34

$11.32

$23,560

Personal Care and Service Occupations

3,437,520

$9.82

$11.59

$24,120

Building and Grounds Cleaning and Maintenance Occupations

4,429,870

$10.52

$11.72

$24,370

In 2006, workers in the following 13 individual occupations received, on average, a median hourly wage of less than $8.00 per hour:[136]

Occupation

Workers Employed

Median Wage

Mean Wage

Mean Annual

Gaming Dealers

82,960

$7.08

$8.18

$17,010

Waiters and Waitresses

2,312,930

$3.14

$4.27

$11,190

Combined Food Preparation and Serving Workers, Including Fast Food

2,461,890

$7.24

$7.66

$15,930

Dining Room and Cafeteria Attendants and Bartender Helpers

401,790

$7.36

$7.84

$16,320

Cooks, Fast Food

612,020

$7.41

$7.67

$15,960

Dishwashers

502,770

$7.57

$7.78

$16,190

Ushers, Lobby Attendants, and Ticket Takers

101,530

$7.64

$8.41

$17,500

Counter Attendants, Cafeteria, Food Concession, and Coffee Shop

524,410

$7.76

$8.15

$16,950

Hosts and Hostesses, Restaurant, Lounge, and Coffee Shop

340,390

$7.78

$8.10

$16,860

Shampooers

15,580

$7.78

$8.20

$17,050

Amusement and Recreation Attendants

235,670

$7.83

$8.43

$17,530

Bartenders

485,120

$7.86

$8.91

$18,540

Farmworkers and Laborers, Crop, Nursery, and Greenhouse

230,780

$7.95

$8.48

$17,630

In 2008, only two occupations paid a median wage less than $8.00 per hour:[137]

Occupation

Workers Employed

Median Wage

Mean Wage

Mean Annual

Gaming Dealers

91,130

$7.84

$9.56

$19,890

Combined Food Preparation and Serving Workers, Including Fast Food

2,708,840

$7.90

$8.36

$17,400

According to the May 2009 National Occupational Employment and Wage Estimates,[138] the lowest-paid occupational sectors in May 2009 (when the federal minimum wage was $7.25 per hour) were the following: